Transport Committee on April 10th, 2014

[Bob Bleaney]

I'd ask Greg to carry on with his responses, because again he is most familiar with this.

[Greg Stringham]

Sure, I can certainly continue on with that.

That is the purpose of the hybrid proposal that we have. In our discussion, we believe that the insurance model for the main-line systems can be put in place to be sufficient, to be able to handle those types of incidents. That's our discussion with the rail lines themselves, and that's how it works on the pipelines. But that may not be the case for those that are on the short-haul lines or the smaller companies, and thus our hybrid proposal to marry in the marine type of funding that is there to put a fund in place that is collectively funded by the shippers to be able to supplement that.

But we feel there's quite a distinction between the main-line systems that can access that insurance market, versus the smaller-line systems that do not have the ability to do that.

[Ed Komarnicki, Conservative, Souris—Moose Mountain, SK]

So what you're saying is the main lines are able to get sufficient insurance, in your opinion, but the short lines might not?

[Greg Stringham]

I'm not an expert on the insurance, but in our discussions with the operator, the rail lines themselves, they tell us that they are able to access that insurance market on a risk basis that would be sufficient for them to cover it.

[Ed Komarnicki, Conservative, Souris—Moose Mountain, SK]

Thank you.

On another point, I notice when we talk about the propane industry.... Actually when you fill up your propane tank at the co-op or some retail outlet, it's interesting to see how the equipment works. You have specific types of nozzles or fittings, and so on. It looks like the industry has developed to take contingencies into account and to ensure that the likelihood of an accident is minimized.

As we know, the crude that's being shipped, particularly the Bakken crude, is evolving, of course. The amount that's being shipped is increasing as we speak, but perhaps the actual design of the railcars, or the fittings, or the transfer from trucks to rail has not evolved as efficiently as it should.

Wouldn't it make sense for the increased volume of volatile crude, like the Bakken crude, to ensure that we have the appropriate railcars in place, and the transfer facilities and equipment to ensure that the incidence of possible accidents would be lowered?

[Greg Stringham]

I can take that one as well, if you like.

The short answer is yes, as much of the growth in the North Dakota Bakken oil in the U.S has gone up on the rail system. It has been building their loading facilities. As we look here in western Canada to loading facilities and unloading facilities in other parts of Canada, clearly the state-of-the-art equipment that's going in for the new facilities should be put in place, and that's what we're looking for, to make sure that's in place.

On the evaluation of the tank cars, again, our recommendation is exactly that. The newer tank cars are being built to the higher standard and are coming on service. All we're suggesting is, on a transition basis, to take some of the lower volatile, heavier crude oils and use them to transition out into the older cars, and clearly put the newer cars being built to the newer standards into the higher volatile service safety mechanisms.

[Ed Komarnicki, Conservative, Souris—Moose Mountain, SK]

Now, we've heard some figures about what it might cost, but regardless, when we're talking 80,000 plus or minus cars at $100,000 or more per car, we're not talking millions, we're talking billions of dollars.

My quick calculation, if I'm right, is $10 billion to replace them, and it's probably accurate to say that you're more likely to replace them than retrofit them, for a variety of reasons. Also, if you're going to equip new transload facilities properly, there's going to be a significant cost there as well. We're not talking small millions. We're talking into the billions.

How do you propose that this cost gets absorbed? Who is it passed on to? Who is ultimately going to be responsible for that cost?

[Greg Stringham]

As I explained earlier, on the crude oil side of the business, the oil price is set on a world market basis and it's come back to this. Those facilities will come back out of the net back that would go back to the producer. It's a transportation cost that will be built into the facilities.

As we're building new facilities, of course it makes sense to use the state-of-the-art ones that are there, and as we're ordering new tank cars, they're being built to the new standard as well. All of the new ones that are coming on for this growth that we anticipate are going to be meeting that new standard. It's really a question of how quickly we can transition the older ones out. Our risk-based approach does allow that to be done in a very safe manner as quickly as we can.

[Ed Komarnicki, Conservative, Souris—Moose Mountain, SK]

The other aspect I see, of course, is with respect to the increase of the Bakken crude and the shortage of pipeline capacity. We find that truckers bring it to the transload facility to rail, and then off it goes. I've noted that at least in my constituency there have been transload facilities within cities and near schools. I've often wondered why it is that facilities aren't placed outside of a community, like two or three miles away. Is it cost? From a safety perspective, it would seem logical to keep it out of the cities.

In the transload aspect of it, is there some danger when you have volatile crude, or is the incidence of or potential for accidents much lower than it is in the transportation of it?

[David Pryce]

I'll take a stab at that.

We're not the business that establishes those facilities, but I think we would agree that there needs to be a mechanism to assess the risks associated with those facilities. There's also a mechanism with respect to the safety management, the safety culture that we have talked about, and that others have talked about as well, and that I think should be applicable to the owners and operators of those facilities. There may be merit in looking at the rules for placement of those facilities as well. The committee might want to look at that as well as the other things the committee is looking at.

The other thing that I think Mr. Boag talked about was the notion of TransCAER, which is an information training initiative that CAPP has signalled we intend to be a new participant in. I think it's important to make sure that anybody in those communities understands what is happening with respect to that business and the products that are being shipped, and certainly that any first responders understand what those products are, what risks they pose, and what strategies need to be in place to manage for the safe operation and/or a safe response in the event of an incident.

[The Chair, Conservative, Larry Miller]

Thank you very much.

Mr. Watson, you have seven minutes.

[Jeff Watson, Conservative, Essex, ON]

After Mr. McGuinty's testimony I was getting worried that he might become a free marketer. Then I remembered it was the Liberals who brought in the Canadian Transportation Act forcing railway companies to carry everything, so I'm not so worried anymore.

Welcome, witnesses. This is an important review of the transportation safety regime. We're focusing obviously both on the transportation of dangerous goods and on safety management systems. We are looking at all modes of transport, or we will have by the time we issue a final report and recommendations at the end of the year, but we're focusing on rail today.

I want to return to the question of DOT-111 cars, the legacy cars, for just a moment. How many DOT-111s do each of your members have? If you don't have that number broken down by company at this particular point among your member companies, I'd like to get that number, or this committee I think would like to benefit by having those numbers. Could that be provided to the committee at some point before we conclude the rail mode of transport?

[Bob Bleaney]

As I would understand it, our members aren't necessarily the owners of all of these vehicles. Some of them are owned by other protocols.

[Jeff Watson, Conservative, Essex, ON]

For those of your members who do, then....

[Bob Bleaney]

I think we could follow up.

Greg, do we have estimates on hand as to that?

Yes, we can provide our estimates of what we understand that to be.

[Jeff Watson, Conservative, Essex, ON]

Is the strategy of your members to replace or retrofit, or is there a mix among your members about what they do with them?

[Bob Bleaney]

The approach has been consistent as to wanting to ensure we have a safe transition out to the newer car models. The process will be, as was discussed, that everyone's buying into the need for the new cars to come on stream and to transition out of the use of the old cars and either transform them by retrofit into the higher standard or replace them.

[Jeff Watson, Conservative, Essex, ON]

Okay, so it could be both.

[Bob Bleaney]

It could be both.

[Jeff Watson, Conservative, Essex, ON]

Depending on the member company. Fair enough.

Transportation Safety Board in their testimony before this committee has suggested that the new DOT-111 cars, which are built to the higher standard and have been coming on stream over the last couple of years, first voluntarily and now by way of regulation, are also problematic. Is there a concern or a consideration among your members about whether the new DOT-111s may have to be transitioned out to a newer standard, and when will that come, and how much that will cost?

[Bob Bleaney]

I'd like to turn that question back to Greg Stringham for his background on that, please.

[Greg Stringham]

Sure, I'm happy to add to that one.

As you know the new DOT-111s, or as we've been referring to them, the 1232 cars, are the standard that's in place right now, that are being ordered. They're the newer standard. There is some discussion in the United States with the PHMSA, Pipeline and Hazardous Materials Safety Administration, for the U.S. government on looking at potentially increasing additional valves, bottom valves, and those types of things. That's in discussion and evaluation right now.

What would happen is if that does become a future standard, again there would be a need for transition because the ones that are in place right now, that are being ordered, will have a life of a certain period of time and are deemed and are being looked at right now as being safe. Of course we always evaluate making sure that this is the safest mode of where it's going, and that's why that is continuing to be evaluated.

It's an ongoing discussion. As new safer equipment comes into place, then of course the industry looks at that, looks at the retrofitability, and of course the new cars beyond that start being ordered in that mechanism. For example, many of the cars that I know are being ordered right now do take into account additional features above the 1232 standard that are available and are being ordered as part of that going forward, but it may not meet the entire scope of issues that are being discussed at PHMSA and with the Association of American Railroads right now.

[Jeff Watson, Conservative, Essex, ON]

With propane, obviously you don't ship by the DOT-111s. You use the DOT-112 or DOT-114 for pressurized TDG transfer. Have there been any concerns raised about those particular cars? Should we be aware of any of that?

[Andy Bite]

No, and those cars came into play in the 1980s and 1990s with the double wall, with the thermal protection, as well as with the head shields, or the significantly thicker heads.

[Jeff Watson, Conservative, Essex, ON]

I want to return to the question of liability or joint liability. A professor testified at this committee not long ago.

Let me just back up for one second. It's the railway companies that said they are butting up against a cap, if you will, in their ability to get more insurance out of the marketplace. You're proposing that they take on additional insurance. Clearly there's not agreement about their capacity to take on more insurance. Is the model you're proposing going to work if they're saying they can't get any more insurance out of the marketplace?